Begging for more not enough

There’s a hole at the heart of almost every submission made by West Australians to the Productivity Commission inquiry into the GST carve-up.

Reading every one of the submissions it’s clear that we, collectively, have got ahead of ourselves.

We’ve come up with plenty of solutions but not demonstrated the problem we’re trying to solve.

The very first term of reference for the commission is explicit.

It is directed to determine: “Whether the present adoption by the Commonwealth Grants Commission of a horizontal fiscal equalisation formula to equalise States' revenue raising and service delivery capacities is in the best interests of national productivity; or whether there may be preferable alternatives.

“On this matter the Productivity Commission should inquire as to whether this aspect of the CGC formula or any other aspect of it may restrict the appropriate movement of capital and labour across State borders to more productive regions during times of high labour demand.”

In more mundane language, the PC has to work out whether the current carve-up system is holding back the national economy, stopping people and money from moving across interstate borders to end up in a spot where they do the economic best by the country.

The Business Council, in one of the better submissions to the commission, noted that “in theory” there is an argument that the current system stops States from making decisions in their own best interest.

“In practice it will be difficult to find unambiguous evidence that the distribution of the GST has systematically affected government decision making,” it conceded.

In practice. How about a dose of reality from the past decade?

WA did not hold back on approving iron ore mines or LNG plants in the hope it would retain a few hundred million in extra GST dollars. Given the choice between thousands of jobs and new residents, governments of both persuasions gave the green light to what became the biggest mining construction boom since the 1850s.

It’s the end of the boom that has done the economic damage to this State. Not the shifting of GST around to other parts of the country.

And, now that the boom has ended, people are heading to other parts of the country where the economy is stronger. Hence, the big lift in Victoria’s population which is benefiting from an expansion in the housing, financial services and education sectors.

While WA was going through its mining boom, Queensland — a mendicant State — was approving three LNG plants side-by-side on Curtis Island at Gladstone.

There’s no evidence that the Queensland Government, which is trying to get the Adani coal mine up and running, held back mining approvals so it could keep getting extra GST dollars. Those mendicant of mendicant States and Territories, South Australia and the Northern Territory, also approved major mining projects without fear of horizontal fiscal equalisation. SA went further as it explored developing a nuclear waste industry as a way to diversify its economy.

About the only WA submission to address the issue was that from the State Government, drawing on some of the research that has been done in this area. But there are substantial question marks over that research, particularly when it turns to questions over the benefits that flow from centralisation versus decentralisation.

Almost all other submissions, however, effectively say “give us some money because we’re doing it tough”.

While that would be a tremendous outcome, the Productivity Commission needs evidence that the current system is hurting the national economy which has just gone through its 26th year of uninterrupted growth.

The Federal Treasury, in its submission to the 2012 inquiry into GST allocation system, actually examined the notion that governments put off tough economic decisions so they could keep some tax windfall.

It found that if a government, for instance, managed to make a 20 per cent efficiency gain in its service delivery then it would end up keeping 89¢ in every dollar. The other 11¢ would would siphoned off to other parts of the country.

“It seems unlikely that a State would be dissuaded from pursuing cost savings in the vast majority of cases, since the distortion generated by horizontal fiscal equalisation,” it found.

It’s this sort of work that any supplementary submissions to the commission need to address, rather than become shameless shake-outs for cash from other States and Territories which will fight tooth and nail to prevent sending their GST to WA. So focused have we become on winning more money that some unintended consequences have been missed entirely.

As reported in The West Australian today, the terms of reference also explicitly state the commission should look at “State laws and policies restricting the development of energy resources”.

The mining and oil and gas industries have been banging on this issue in particular, especially with Scott Morrison and Malcolm Turnbull trying to get more natural gas out of Victoria and NSW to help drive down east coast electricity prices.

But ignored in all the finger pointing at NSW and Victoria is WA’s own restrictions in this space. The Barnett government effectively ruled out coal mining in the Margaret River area in 2011 while the McGowan Government has a fracking ban for the South West.

Neither did that because they believed allowing these pursuits would somehow translate into extra GST.

They did it largely on the back of political and environmental considerations.

Does anyone really believe that the Liberal Government of NSW, or the Labor Government of Victoria, sat around the Cabinet table and decided to prevent gas exploration and development knowing they would make up any financial shortfall via the GST system?

These are the two States that have put more back into the Commonwealth since Federation than any other part of the country. They’ve never been mendicant States. No, these two governments read the political writing on the wall.

A combination of the Green Left and the National party Right continue to fight what they see as the unspeakable damage the gas or coal industries will do to prime agricultural land.

Just last week the NSW Government spent $260 million buying a controlling share in a coal company’s tenements across the Liverpool Plains to make sure this area is not disturbed by a coal mine.

So imagine the political bunfight that could explode if the Turnbull Government says it will financially penalise a State that does not allow fracking or coal mining in areas where the local community is absolutely opposed to the concept.

Getting an inquiry into the GST system is an important step towards addressing the injustice of the current carve-up of $66 billion across the Commonwealth.

But we have to do much better to argue our case.

Mimicking Oliver by putting out the begging bowl and asking for more simply doesn’t cut it.